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It’s a sneak peek: They’re testing new software. (47 seconds, cute)

I recently read Felix Salmon’s article on buy-side vs. sell side and it reminded me of a rant I’ve been developing and harboring for some time. Just another aspect of why Wall Street is broken.

Here’s a little 101, for those that don’t know.  Trading securities for cash or other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is referred to as the "sell side". Dealing with the pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell side are known as the ‘buy-side.’ Many firms have both buy and sell side components in order to maximize their return on investment.

Here’s the rub.  Your average advisor/broker works in a firm that makes HUGE, I mean, insane margins on their ’sell side’ activity.  We’ve seen this truth with their ridonkulous exhibits of privilege, as the kids would say.

So, where do you fit in Mr. and Mrs. Client?

Well, you do not have more money than mutual funds, or Wall Street’s perennial favorite, the hedge fund client. And it’s sad when I see one of the usual suspects (with Lynch or BS in their name) bragging about how their trading desk is the biggest in the world, because that, often stretched truth, means absolutely nothing to most of their client base in terms of benefit. I cringe when I am told about some hot bond or secondary a person bought from their broker. Because here’s the reality: Almost every deal, every bond, every issue you see Mr. and Mrs. Retail–has been passed over by insurance companies, corporate clients, private equity, hedge funds, mutual funds, everybody…before it came to you.

Today’s ‘Financial Industrial Complex’ is about distribution, plain and simple.  Oh sure, you probably have a bevvy of third party managers in your portfolio to give you the idea of arms-length dealing, but even those managers are part of the game.  Remember those third party managers also buy IPOs and secondaries–and a lot more than you. 

Those third party managers also give the Wall Street firms trading revenue every time they switch your portfolio.  And all of that activity: Amounts to a mountain more than your fee (which is still too high).

All I’m offering is the truth, nothing more…

You are the quagmire. The average household is a marsh.  Your job is to stay in the market, to keep buying what they are selling (even if it’s a sell rating).  Your job is to take concentrated risk and played out trades (from their bigger, better clients or even their own inventory) and wash it out over millions of accounts so no one gets hurt (too much). The system’s PH balance is maintained.

 It’s a game changer, once you open your eyes. Focusing solely on wealth management or solely on investment banking is where the business should arguably return, back to their roots. Brokers are realizing it.  Customers are realizing it.  And someday Wall Street will have to realize it, as their market share continues to dwindle.